A Playbook for Agents Working With First-Time Buyers

Buying a single-family home for the first time is challenging, but even more so in a time of inventory shortages and affordability issues; help ease anxiety by sharing these useful steps.
An smiling, Black woman with an afro is handed the keys to a new home by a white woman with short blonde hair

©Vladimir Vladimirov / Getty

Three key takeaways

  • With inventory down, good listings sell fast, which means agents need to prep first-time buyers to be knowledgeable and prepared.
  • Buyers need to understand what an inventory shortage means for their options and budget.
  • Agents need a full understanding of the buyer’s needs, the available resources to assist buyers and a strong network of industry professionals.

A house is typically the largest investment people make. It keeps some up at night, worrying if they’ve budgeted properly to afford the downpayment and the maintenance of the home on top of their regular expenses like food and transportation. The process is an emotional one.

Help potential buyers by walking them through the process and dispelling common myths. One is that many first homes are temporary places to live before buyers trade up. In an era of housing shortages, it may become their long-term, even forever home, says salesperson Stephanie Mallios with Compass’ Stephanie Mallios Team in Short Hills, N.J.

Here are some of the most important factors to help first-time buyers understand.

Consider the Financial Pieces

First challenge: a down payment, for first-time buyers who can manage the cash, at least 20% of the sales price, if in a multiple offer situation, is still the gold standard, says Angie Golembiewski, broker at Baird & Warner in Chicago. Putting down more makes an offer stronger at a time when many of the buyers in the market are paying cash—around 32%, according to National Association of REALTORS® (NAR) data, the highest rate of cash buyers in a decade.

That said, many first-time buyers don’t have the cash or the familial support to come up with a 20% down payment, which is why real estate agents need to be well-versed in alternative options. There are programs at the federal and state levels, and often county and city, too. Housing-specific nonprofit organizations offer programs to alleviate the steep costs of buying a home. One such nonprofit is the Neighborhood Assistance Corporation of America (NACA), which offers what it refers to as “character-based” lending, mentorship and counseling to “close the racial wealth disparity” through homeownership.

Sometimes, it’s as simple as having a relationship with an experienced loan officer who can provide a variety of product options. Betsy Phillips, SRES, CSHIP, broker with Compass on Chicago’s North Shore, connects clients with savvy loan officers in her network. “There’s no magic option, but this helps, as does explaining certain rules and guidance related to credit counseling, so they have the best score possible,” she says.

Mallios refers clients to three different lenders to help educate them about different programs, as well as a local real estate attorney who can recommend a lender, too. “This gives them a second tier of support and experts who can show them a range of good options,” she says.  

Another way new homeowners can compete is to get pre-approved for a loan, which means a lender is ready to underwrite a mortgage for them once they have a home in mind. This helps them figure out exactly what they can afford and shows the sellers that they’re prepared to make the purchase.

Interest rates make a big impact on payment and interest paid over time. First-time buyers will want to make sure that their financial situation is as healthy as possible so they can get approved for the best rate. “Lenders typically look at a borrower’s credit score, the stability of their employment and income, their savings and the downpayment they offer,” says Diane Mastay, Mortgage Director at Tropical Financial Credit Union. Mastay also recommends that borrowers visit at least two lenders to compare the dollar amount they will lend and the interest rate.

It's also important that buyers understand the other short-term and long-term costs of homeownership: closing costs, real estate taxes, homeowners’ and liability insurance, yard work, heating, air conditioning and so on, plus an emergency fund for unexpected costs they didn’t incur in a rental situation. Phillips advises buyers to factor in these costs and figure out what they can afford comfortably when it comes to a mortgage payment, rather than take the maximum mortgage some lenders may offer.

Understand the Timeline

From start to finish, finding a home to reaching the closing table is six to eight weeks, says Re Associate Broker Kimberly Cantine from Halter Associates Realty. “This is a point that is usually open to negotiation by both sides,” she says. “Also, it’s an ‘on’ or ‘about’ closing date so there’s usually flexibility,” she says.

Timelines, however, can sometimes be specific to the area. As a real estate professional, you’ll want to be able to tell your buyers what the average timeframe is for your community.

Prioritize Location

Homeowners should understand they can change much about their home once they purchase it—exterior materials and windows as well as interior features such as a kitchen, but the location is a permanent feature that can’t be changed. They should figure out what matters most to them in a community and decide on a location first.

First-time buyers who are millennials often favor walkability to downtown areas and local trails, and they will sacrifice house size or other features to achieve that, says Golembiewski.

Also help them understand how communities have different vibes, says Phillips. That way they can choose one that compliments their living style.

Weigh Curb Appeal

Most real estate experts stress how important the exterior of a home and its yard are when selling to entice buyers, but at a time of low inventory, buyers might want to consider upgrading their yards once they’re homeowners.

One exterior feature that many expect to remain popular is a small yard, which lets them avoid expensive, time-consuming upkeep. “The amount of yard most want is just enough to toss a ball occasionally with a child or dog,” Phillips says.

Factor in Condition

In a sellers’ market, fewer sellers may be willing to take on the expense of certain repairs or split the cost with the buyer. Yet, fewer millennials want to tackle big projects and prefer move-in-ready conditions, says Golembiewski. Data shows that many young buyers do not have the extra funds to make substantial renovations.

If a home needs work, have a frank discussion with buyers about the amount of effort and cost they can undertake or pay out to professionals. The reality is that finding a turn-key home at a favorable price point is the exception rather than the norm right now. Here’s where a detailed home inspection report is essential as a roadmap—and sometimes also a structural engineer’s input, depending on the age and location of the home.

Consider New Construction

While existing home inventory is in short supply, many builders are trying to meet demand with new products. New construction is an appealing option for many first-time buyers. Helping spur the appetite for new construction are the lower costs of maintaining new housing, due to the lower insurance costs—40% to 50% less versus older homes, says Whitney Dutton, Residential Sales Director of Native Realty, in Fort Lauderdale, Fla.

Montgomery, Ala.-based Lowder New Homes’ Bradshaw Tyson, Vice President of Marketing says, One distinct advantage of buying a new-build home over a re-sale is that oftentimes builders are able to offer buyer incentives, or ways to help offset the cost of the new home. “At Lowder New Homes, we run promotions throughout the year that offer buyers an allowance, anywhere from $5,000 to $25,000, to use towards lowering their interest rate, help cover closing costs, or on home upgrades. We also have a group of preferred mortgage lenders who partner with us on our buyer incentives and can provide guidance to the buyer on how to utilize the promotion to best suit their needs.”

In Dutton’s South Florida market, insurance costs have skyrocketed due to climate-related activity. “The insurance companies have increased their regulations on roof age, plumbing and elevation,” he says. “Some companies won’t even insure properties with a 10-year-old roof for example. New homes are also built to new stricter building codes. “While some newer homes may be more to purchase initially than comparable older homes, they are cheaper to own, maintain and overall, a much safer product—with things like high impact windows and doors. This has brought a lot of investors to the table tearing down older homes, building new and selling them to eager first-time buyers,” he says.

The buying process is a complicated one, especially for first-timers. By providing all these tips, you’re helping first-time homeowners do their due diligence and communicating your value through your knowledge. This can help your buyers get into the best choice possible, which they may enjoy for years.